This is an interesting well written article about a Google patent filed in 2003. The author does an excellent job of explaining that this does not mean Google is using this exact patent today. However this article http://www.seobythesea.com/?p=929 will explain several important concepts for search engine optimization and may help you.
I can tell you for sure that Google currently does also look at who you link out to. So to keep it simple one could say if your site links out to only spam crap, then most likely Google will consider your site spam crap. Something to think about when people ask you to put up a link to their web site for them.
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